South Korea’s Kia invests in Indian factory after China troubles hit profit

South Korean carmaker Kia Motors Corp signed a deal on Thursday to invest about $1.1 billion to build its first factory in India, aiming to tap a fast growing market at a time when its China sales are sagging.

The Hyundai Motor Co affiliate posted a 19 percent slump in first-quarter net profit as anti-Korean sentiment and a conflict with dealers hit its China sales, sending its shares down 2.2 percent in a flat market.

Production at the factory in Anantapur district, Andhra Pradesh state, would begin in the second half of 2019, the company said.

Kia is expected to leverage Hyundai’s supply chain network built around its factories in the neighboring state of Tamil Nadu to gain a foothold in the Indian market, tipped to become the world’s third-largest by 2020. Hyundai is India’s No.2 automaker by sales.

The plant, which will have production capacity of 300,000 vehicles a year, will produce a compact sedan and a sport utility vehicle tailored for the Indian market, Kia said in a statement.

It will break ground in the fourth quarter of this year.

“Our new India plant will enable us to sell cars in the world’s fifth-largest market, while providing greater flexibility for our global business,” Kia Motors President Park Han-woo said in a statement.

Reuters reported in February that Kia was close to finalizing Andhra Pradesh as the site for its first Indian factory..

The announcement came after Kia and Hyundai Motor suffered a March sales slump in China, their biggest market, and sharply cut production in the wake of Seoul’s decision to deploy a U.S. anti-missile system, which angered China.

“The fall in consumer sentiment in China is stemming from a political issue, a situation which is beyond the control of an individual firm and is difficult to be resolved within the short term,” Han Chun-soo, Kia’s chief financial officer, said during an earnings conference call.

Kia would adjust its China production to reduce inventories, cut costs and launch new models including a small crossover to minimize the impact of the political row, he said.

Kia also said its first-quarter profit was hurt by a cost of 160 billion won ($141.53 million) to recall vehicles over an engine issue in North America and South Korea.